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Concept and Uses
Reverse logistics is the process of planning, implementing, and controlling the
efficient, cost effective flow of raw materials, in-process inventory, finished goods and
related information from the point of consumption to the point of origin for the purpose
of recapturing value or proper disposal. More precisely, reverse logistics is the process of
moving goods from their typical final destination for the purpose of capturing value, or
proper disposal.[1]
The products procured via reverse logistics are called as recovered assets. Asset
recovery is the classification and disposition of returned goods, surplus, obsolete, scrap,
waste and excess material products, and other assets, in a way that maximizes returns
to the owner, while minimizing costs and liabilities associated with the dispositions.[2]
Waste Management
To reduce environmental impact, we need to recollect the waste generated from
our products. This is especially true in case of certain medical products such as syringes
where proper disposal is needed.
Sometimes, the empty containers/packaging can also be reused for new
products. The classic example is that of glass cola bottles. It makes great sense to recall
empty glass bottle so that they can be reused. This also costs less than making more
glass bottles. Similar is the case with newspapers. Used newspapers can be recycled to
produce more paper.
Unsold Products
Sometimes, products can get damaged. Sometimes, the expiry date passes but
the product is unsold. These good need to be salvaged from the retailers and need to be
disposed or recycled. To enable these operations development of reverse logistics is
needed.
Sale of certain products is seasonal. Their off season demand is very low and high
left over inventory is a pain for the retailer. This situation is also called as a job-out.
Similarly, some products are released only for limited period. There can also be products
that have become obsolete and enjoy no market demand. Development of reverse
logistics is needed to manage such closeouts.
It might happen that sale of products in a certain region is high and low in
another region. It makes sense to move goods from low sales to high sales area. This is
a common practice followed by many companies. ITC follows this practice for its
Sunfeast biscuit line.
Return Policy
The company can at times have a return policy for products in case the consumer
remains unsatisfied. There is also a sales contract that says if products are unsold within
a certain time frame then they need to be taken back. To honour such return policy,
there is a need for reverse logistics. [3]

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Product Disposition Strategies
There are these uses of assets recovered via reverse logistics:
 Sell via outlet: This option is usually chosen by brand sensitive companies.
Manufacturers take back returns and sell them in their own outlet stores. These
outlet stores are often highly profitable. The margins for the manufacturer are
even higher than if the product was sold to a retailer.
 Sell to secondary market: The type of products sold to secondary markets are
usuallycloseouts, surplus, and salvage items. Firms that buy these products at
low prices operatethis market. Then they sell them through their own stores or to
other mark−downretailers.
 Remanufacture or refurbish: Specially used for electronic equipment,
domesticappliances and industrial machines. The manufacturer diagnoses the
problem andrepairs the item, sometimes with a loss of quality but conserving the
product identity
 Donate to charity: When the product is usable but need some reparations or it is
out ofseason to give it to a charitable organisation is an alternative. This option
can lead to tax advantages.
 Recycling: An ecological motivation is behind recycling. Some legislation and
groupsof pressure have pushed manufacturers to adopt environmental friendly
plans. Toreduce the amount of materials used in doing a product, to reuse and
recycling theproduct is the goal. And this order is important, first material
reduction to maximum,then maximise the reuse and finally recycling. The items
for recycling are usually sentto specialised companies.
 Auction returned goods on the internet: This application might increase. Even if
themanufacturer has to pay for this service to internet auctioneers, the cost of
thetransaction is lower than absorbing the costs of shipping the products back
and disposing them.
 Landfill: Landfill and incineration capacities are almost saturated in the
industrialcountries. Disposal should be the last option. The manufacturer will
dispose the product at the lowest cost.[4]

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Philosophy of Investing in Robust
Reverse Logistics
Organizations are not just simply seeking to minimize their reverse logistics
costs, as many firms are seeking to improve their recoveries on goods and assets at the
end of the flip side of the supply chain. By actively marketing their surplus – getting an
unneeded asset out of their hands and deriving positive revenue from it the process -
companies are finding that they can produce significant gains. If a firm can sell its
surplus assets, then these incremental revenues can enhance the company's financial
standing. Money generated through asset recovery goes straight to the bottom-line. This
accounts for the rapid growth of a host of used machinery sales outlets or "'B' channel,"
for goods that have been through a reverse flow. While the "B" channel is intended to
operate separately from a company's primary sales channel, the "B" channel can also
handle first quality and never used items as well. By operating as a "B" channel,
companies can derive positive revenue, without harming their "A" channel. [5]
Cost Area Implications
Opportunity Costs Surplus assets have little value, but they tie-up cash
and consume management's time and attention,
taking away from the organization's primary mission.
Poor Space Utilization Surplus assets take-up space on shelves and in
warehouses, crowding-out more productive, revenue-
generating items and activities.
Monitoring Expenses Surplus assets must be tracked and monitored, at a
cost, and with activity that could be better directed at
revenue-generating activities.
Maintenance Costs Many surplus assets must be maintained in order to
be kept is usable condition – at a cost.
Insurance Costs Surplus assets must be insured against loss or
destruction, as well as for liability purposes.
Higher Taxes Surplus assets may well increase a company's
property and/or state tax liabilities.
Depreciation
Expenses
Surplus assets depreciate more rapidly than other
assets.

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Strategies explained using Phillips
Consumer Lifestyle Case Study
There should be awareness regarding the importance of reverse logistics to a high
level in the organization. The senior management should support reverse logistics efforts
and build cross-functional teams.
Consumers who purchase a Sonicare toothbrush, decide after a few uses that it’s not for
them, and return it, probably never think about what happens to that product after they
receive their refund. But for Philips Consumer Lifestyle— maker of Sonicare, Norelco
shavers, Avent baby products, and a variety of consumer electronics goods— what
happens to returned products is crucial to the bottom line and to its sustainability goals.
A company needs to have a clear reverse logistics philosophy that guides their
strategy.
Because of the nature of the products’ use, returned products such as toothbrushes,
shavers, and baby bottles cannot be resold and must be disposed of. But just heaping
them in a garbage dump does not meet Philips’ zero-landfill goal.
Then there should be development of human capital that will take this forward.
The key here is to select right supply chain partners that can help your goal. The
company should then closely work with the supply chain partners to develop reverse
logistics.
To make sure its products do not end up in landfills, Philips works with third-party
logistics provider Ryder Supply Chain Solutions to select partners that can provide
proper disposition.
“Our zero-landfill goal is critical when selecting partners,” notes Tony Sciarrotta, senior
sales manager for Philips Consumer Lifestyle. “We don’t want a partner to put our
products in a dumpster.”
Sciarrotta’s division also has stringent environmental guidelines for handling returns of
its consumer electronics goods. Together with Ryder, it has crafted a reverse logistics
process that helps it refurbish, reuse, and resell nearly 80 percent of these returned
goods.
Develop a clear reverse logistics process that will determine the fate and physical
flow of recovered assets. The process steps are: gatekeeping, collection, sortation, and
disposition.
Gatekeeping is defined as the screening of defective and unwarranted returned
merchandise at the entry point into the reverse logistics process. IT enabled gatekeeping
process can help to analyse the cause for return. By tracking hundreds of return
authorizations, a firm can build a data warehouse that contains return reasons. If a
quality problem exists with a product, consolidation of returns will highlight those quality
difficulties more quickly than if returns dribble in slowly from retail customer service
desks. The return policy should also be shaped as per the feedback.

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Centralized return centres are processing facilities devoted to collecting returns
quickly and efficiently. In a centralized system, all products for the reverse logistics
pipeline are brought to a central facility, where they are sorted, processed, and then
shipped to their next destinations. This system has the benefit of creating the largest
possible volumes for each of the reverse logistics flow customers, which often leads to
higher revenues for the returned items. It also allows the firm to maximize its return on
the items, due in part, to sortation specialists develop expertise in certain areas and can
consistently find the best destination for each product
Because most of the finished goods returned to Philips Consumer Lifestyle still function
well, the key emphasis is on repackaging and reselling these products as refurbished
goods— and doing so in a cost-effective and green manner. Returned products are
shipped to a 500,000-square-foot facility in Groveport, Ohio, which Ryder operates for
Philips Consumer Lifestyle.
The secondary market is a term for the collection of liquidators, wholesalers,
exporters, brokers and retailers who sell product which, for one reason or another, has
not sold through the primary sales channels. Companies in the secondary market sell
both new and used product. The figure below describes the flow to the secondary market
and its reasons.
Figure 1:0:1 Flow of Returned Goods into the Secondary Market
There, Ryder runs a triage operation to determine if goods are resalable or
malfunctioning, and whether it makes business sense to repair them for resale, or
dispose of them (see chart). If they are to be resold in a secondary market, Ryder
manages the distribution of those repackaged goods. If they can’t be resold,
Ryderdisassembles, sorts, and segregates parts by product type and works with the
recycler to ensure they are disposed of in an environmentally sensitive way.
Most of Philips Consumer Lifestyle’s returned goods still function well, so the company
relies on third-party logistics provider Ryder Supply Chain Solutions to handle returns
correctly. To ensure consistency, a technology solution guided by business rules

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determines how to direct the returned product through each step in the reverse logistics
process. Here’s how it works.
Figure 0:2 Reverse Logistics Strategy
The company should develop IT support for reverse logistics. This helps in
accurately assessing the true cost of returns on reverse logistics and ensures return
information is visible and traceable throughout the channel.
“Our goal is to determine the greatest value Philips Consumer Lifestyle can get from its
returned assets, and execute in a green-friendly fashion— as quickly and cost-effectively
as possible,” says Chad Burke, director, supply chain excellence for Ryder. To that end,
Ryder developed an IT solution with business rules that govern when goods should be
set up for resale or put through the disposition process. “We make a business decision
on returned products based on their cost and retail sale price point,” Sciarrotta explains.
“A product that sells for less than $100 at retail, for example, is not worth refurbishing.”
The IT solution has increased the velocity of reverse logistics for Philips Consumer
Lifestyle, and brought much-needed transparency to the process. “The system gives
Philips immediate visibility to what is being returned, when credits have been initiated,
and what path those products will take, as well as a feel for the amount of refurbished
inventory it has on hand,” Burke explains. “This visibility to the whole process helps the
company make better decisions and lessens its impact on the environment.”
Gatekeeping is defined as the screening of defective and unwarranted returned
merchandise at the entry point into the reverse logistics process. IT enabled gatekeeping
process can help to analyse the cause for return. By tracking hundreds of return
authorizations, a firm can build a data warehouse that contains return reasons. If a
quality problem exists with a product, consolidation of returns will highlight those quality
difficulties more quickly than if returns dribble in slowly from retail customer service
desks the return policy should also be shaped as per the feedback.

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Another critical element to successful reverse logistics management is having
short disposition cycle times. The companies that are best at managing their reverse
logistics processes are adept at gatekeeping and identifying causes. These firms are also
able to reduce cycle times related to return product decisions, movement, and
processing.
Ryder also handles reverse transportation for Philips Consumer Lifestyle, consolidating
product returned from retailers and implementing proper gatekeeping practises to
“reduce the number of trips, and the associated carbon footprint and costs,” notes Norm
Brouillette, Ryder’s group director, supply chain solutions. Having Ryder handle both the
reverse logistics processes and forward distribution of repackaged goods out of its
Grovepoint facility allowed Philips Consumer Lifestyle to cut its transport costs and fuel
use, and leverage its building’s carbon footprint.
“Rather than have a separate third party handle distribution and incurring duplicate
transportation and carbon footprint costs, we do everything in one facility and cut down
on the need for multiple shipments,” Brouillette explains.
As an additional green benefit, Ryder uses recycled cardboard and paper rather than
petroleum-based products when it repackages and ships returned goods to secondary
sales channels. “At our request, they try not to put anything into the waste stream that
has a negative effect on the environment,” Sciarrotta says.
Besides this case, there are some other reverse logistics strategies that are
commonly used. One such strategy is zero returns policy. In zero return programs, the
manufacturer or distributor does not permit products to come back through the return
channel. Instead, they give the retailer or other downstream entity a return allowance,
and develop rules and guidelines for acceptable disposition of the product.A zero returns
policy, properly executed, can result in substantially lower costs, according to the
research respondents. Firms using zero returns can reduce the variability of returns
costs, by pre-setting the maximum dollar amount of returned product. Stabilizing return
rates using a zero returns program promotes planning and fiscal health. Zero returns
enable the firm to avoid physically accepting returns altogether, a strategy being
adopted by some consumer product companies, and several electronics companies.
Interestingly, most retailers do not track the cost of returns. Instead, merchandise
buyers factor the return allowance into their pricing, which ignores the cost of returns.
[2][6][7]